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State aid, 6 December 2010

State aid, 6 December 2010. EEA State aid regime - General. The EFTA Surveillance Authority (ESA) monitors state aid granted by Iceland, Liechtenstein and Norway in the same way as the Commission does in the EU, in accordance with equivalent substantial and procedural rules

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State aid, 6 December 2010

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  1. State aid, 6 December 2010

  2. EEA State aid regime - General • The EFTA Surveillance Authority (ESA) monitors state aid granted by Iceland, Liechtenstein and Norway in the same way as the Commission does in the EU, in accordance with equivalent substantial and procedural rules • Instruments adopted by the Commission in its state aid surveillance capacity also adopted by ESA (State aid Guidelines)

  3. A. State of play in implementing the EU state aid acquis 1. Substantial provisions • The primary state aid provisions in the EEA Agreement are identical in substance to those of the EC Treaty. Article 61 EEA and Article 1, Part I of Protocol 3 to the Surveillance and Court Agreement (SCA), identical in substance to (ex) Articles 87 and 88 of the EC Treaty, Articles 107 and 108 TFEU - “Save as otherwise provided in this Agreement, any aid granted by EC Member States, EFTA States or through State resources in any form whatsoever ... ” - “The EFTA Surveillance Authority shall, in cooperation with the EFTA States, keep under constant review all systems of aid ...”

  4. 2. General procedural rules (1/2) a. procedural regulations • Council Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty → Incorporated into Part II of Protocol 3 to the Surveillance and Court Agreement (SCA) • Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC) No 659/1999 → Corresponds to ESA Decision No 195/04/COL on the implementing provisions referred to under Article 27 in Part II of Protocol 3 to the SCA (provisions concerning notifications, annual reports, time limits, recovery, etc.)

  5. 2. General procedural rules (2/2) b. Reference/discount and recovery interest rates • Commission Communication on the interest rates to be applied when aid granted unlawfully is being recovered → Corresponds to the chapter on Reference and Discount Rates in ESA's State Aid Guidelines

  6. 3. Financial transfers and transactions (1/3) a. Financial Transfers to public enterprises • Commission Directive 2006/111/EC on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertaking (Transparency Directive) → Adopted into the EEA Agreement → Implemented into national legislation by way of incorporation into Regulation (IC) No 430/2008 on the entry into force of the Commission Directive on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertaking

  7. 3. Financial transfers and transactions (2/3) b. State Guarantees • Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees → Corresponds to the chapter on State guarantees in ESA's State Aid Guidelines c. Public Land Sales • Commission communication concerning aid elements in land sales by public authorities → Corresponds to the chapter on State aid elements in sales of land and buildings by public authorities in ESA's State Aid Guidelines

  8. 3. Financial transfers and transactions (3/3) d. Export Credit Insurance • Communication of the Commission to Member States on the application of Articles 92 and 93 of the Treaty to short-term export-credit insurance (as amended) → Corresponds to the chapter on Short-term export-credit insurance in ESA's State Aid Guidelines e. Fiscal aid - Direct Business Taxation • Commission notice on the application of the State aid rules to measures relating to direct business taxation → Corresponds to the chapter on Application of state aid rules to measures relating to direct business taxation in ESA's State Aid Guidelines

  9. 4. Rules on the assessment of state aid with horizontal objectives (1/3) • Regulation (EC) No 1998/2006 on the application of Articles 87 and 88 of the Treaty to de minimis aid → Incorporated into the EEA Agreement • Regulation (EC) No 800/2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation) → Incorporated into the EEA Agreement • Community framework for state aid for research and development and innovation (R&D&I) → Corresponds to the chapter on Aid for research and development and innovation in ESA's State Aid Guidelines

  10. 4. Rules on the assessment of state aid with horizontal objectives (2/3) • Community guidelines on State aid for environmental protection → Corresponds to the chapter on State aid for environmental protection in ESA's State Aid Guidelines • Commission communication on State aid and risk capital (now Community guidelines on state aid to promote risk capital investments in small and medium-sized enterprises) → Corresponds to the chapter on State aid to Promote Risk Capital Investments in Small and Medium-Sized Enterprises in ESA's State Aid Guidelines

  11. 4. Rules on the assessment of state aid with horizontal objectives (3/3) • Temporary Community framework for State aid measures to support access to finance in the current financial and economic crisis → Corresponds to the chapter on a Temporary Framework for State aid measures to support access to finance in the current financial and economic crisis in ESA's State Aid Guidelines

  12. 5. Rules on the assessment for approval on regional aid • Guidelines on national regional aid for 2007-2013 → Correspond to the chapter on National regional aid 2007 – 2013 in ESA's State Aid Guidelines 6. Rescue and restructuring aid • Community guidelines on State aid for rescuing and restructuring firms in difficulty → Correspond to the chapter on Aid for rescuing and restructuring firms in difficulty in ESA's State Aid Guidelines • Commission communication on Rescue and restructuring aid and closure aid for the steel sector → Corresponds to the chapter on Rescue and restructuring aid and closure aid for the steel sector in ESA's State Aid Guidelines

  13. 7. Rules on the assessment of services of general economic interest (SGEI) • Commission Decision on the application of Article 86(2) of the EC Treaty to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest → Incorporated into the EEA Agreement (Article 86(2) EC corresponds to Article 59(2) of the EEA Agreement) • Community framework for State aid in the form of public service compensation → Corresponds to the chapter on State aid in the form of public service compensation in ESA's State Aid Guidelines

  14. 8. Rules on the assessment for approval of aid to particular sectors (1/4) • Shipbuilding - Framework on State aid to shipbuilding → Corresponds to the chapter on State aid to shipbuilding in ESA's State Aid Guidelines • Postal Services - Notice from the Commission on the application of the competition rules to the postal sector → Not adopted in the ESA Guidelines • Broadcasting - Communication from the Commission on the application of State aid rules to public service broadcasting → Corresponds to the chapter on the application of the state aid rules to public service broadcasting in ESA's State Aid Guidelines

  15. 8. Rules on the assessment for approval of aid to particular sectors (2/4) • Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks → Corresponds to the chapter on Application of state aid rules in relation to rapid deployment of broadband networks in ESA's State Aid Guidelines • Audiovisual production - Communication from the Commission on certain legal aspects relating to cinematographic and other audiovisual works → Chapter 2 of the Communication corresponds to the chapter on State aid to cinematographic and other audiovisual works in ESA's State Aid Guidelines (Chapter 2 sets out the general orientation of the European Commission with regard to state aid in the cinema sector)

  16. 8. Rules on the assessment for approval of aid to particular sectors (3/4) • Commission communication on the return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules → Corresponds to chapter on Return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules in ESA's State Aid Guidelines (Restructuring Guidelines) • Communication from the Commission on the treatment of impaired assets in the Community banking sector → Corresponds to the chapter on the Treatment of Impaired Assets in the EEA Banking Sector in ESA's State Aid Guidelines (IAG)

  17. 8. Rules on the assessment for approval of aid to particular sectors (4/4) • Communication from the Commission — The recapitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition → Corresponds to the chapter on the recapitalisation of financial institutions in the current financial crisis in ESA's State Aid Guidelines (Recapitalisation Guidelines) • Communication from the Commission — The application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis → Corresponds to the chapter on the application of state aid rules to measures taken in relation to financial institutions in ESA's State Aid Guidelines (Banking Guidelines)

  18. Regionally assisted areas 1 January 2008 – 31 December 2013 • Iceland outside the capital region • Cf. ESA Dec. 378/06/COL on on the maps of assisted areas and levels of aid

  19. Regionally assisted areas (2) • Map consists of two Nuts III regions • The NUTS III region “Iceland outside the Capital region” corresponds to the N-West, N-East and South electoral districts • The areas included have a total population of 96 010 and an average population density of 0.95 inhabitants per square km (2006 est.), about one third of the total population. • Actual population density is 2.9 / km2 • Aid ceilings:

  20. B. Enforcement 1. General overview of the aid measures notified to (or reviewed by) ESA over the past five years(1/2) • A total of 25 measures reviewed in 2004-2010 • Since 1994 ESA has published 64 Decisions relating to Iceland and State aid

  21. 1. General overview of the aid measures notified to (or reviewed by) ESA over the past five years (2/2) • Out of 25 cases, 18 originate from Notifications, 6 from complaints and 1 ex officio • 4 currently under review, 1 SGEI, 15 Compatible/Non aid/No objections, 3 Incompatible, 1 appropriate measures, 1 Closed after formal invest • 3 regard the Housing Financing Fund (HFF), 2 aluminium smelters, 2 undersea telecom cables, 5 financial crisis • 9 Ad hoc, 8 Schemes, 4 Non-aid, 4 N/A • 5 regional developement objectives, 1 maritime transport

  22. 2. Description of the State aid measures adopted in the context of the financial crisis, state of play of the procedure of notification to ESA • A total of 12 different measures identified • 3 originating from complaints (all alleged aid), • 8 Notified measures, • 1 ex-officio • 1 withdrawn, 1 approved, 1 no objections, 9 pending • 2 real economy

  23. Financial crisis - the build-up 2003-2008

  24. Financial crisis – the collapse • Complete restructuring of the the financial system since October 2008 – still ongoing • Total assets of depository institutions (DMBs) worth 10 times the Icelandic GDP in 2008 (Debts to match: Foreign debts of Icelandic financial undertakings worth 7 times the GDP in 2008) • Year-end 2009 total assets were worth 2 times the Icelandic GDP • (Source: Statistics Iceland)

  25. Financial crisis – reduction in size DMBs total assets, % of GDP

  26. Description of crisis measures I. The three main banks (1) • Collapse of Kaupthing, Glitnir and Landsbanki (the old banks) in 2008 • Domestic market share 65-85%, 60% of the Icelandic stock market • Three new banks established, deposits and assets allocated from the old banks on domestic/foreign basis • Restructuring ongoing, partially sold in 2009 to the old banks as compensation for allocated assets, partially capitalised by the state

  27. Description of crisis measures I. The three main banks (2) • Mixture of good/bad banks • Lengtly pre-notification process with ESA, 2 phased approach • Rescue (Notified Septeber 2010) • Restructuring (2011) • First Decision from ESA expected December 2010 • Internal restructuring plans in final stages

  28. Description of crisis measures II Byr Ltd. and III SpKef Savings Bank • Both former savings banks • After negotiations with creditors failed in 2010, new undertakings were established by the state – deposits and assets allocated from the collapsed savings banks • Pre-notification procedure initiated fall 2010 IV Verne Data Center • Data Center, construction halted in 2008 • Draft Investment Agreement in 2009 • Formal investigation initiated in 2010

  29. Description of crisis measures V and VI Housing Financing fund (HFF) • Temporary bond swap scheme (liquidity facility) – notified in 2008 – approved • Permanent bond swap scheme (transfer of mortgage loans) – notified in 2009 – formal investigation ongoing

  30. Description of crisis measures VII. Sjóvá Insurance Company • Rescue and Restructuring of a major insurance undertaking (ca. 30% market share) • Viable insurance operations allocated to a new undertaking, non-viable investment operations remained with the old company • New company largely owned and capitalised by the State • Failure to notify, information injunction, formal investigation 2010

  31. Description of crisis measures VIII. Smaller savings banks scheme • Settlement of claims owned by the Central Bank of Iceland on 5 smaller savings banks as a result of the failure of the three main banks • Rescue (approved 2010) • Restructuring (pending)

  32. Description of crisis measures IX. Saga Capital and VBS - small investment banks • Alleged State aid through conversion of CBI claims • Complaint – information request X. Investment funds “UCITS” • Decisions of new banks to purchase impaired assets from investment funds managed by subsidiaries, allegedly imputable to the state • Complaint - formal investigation (2010)

  33. Description of crisis measures XI. Húsasmiðjan hardware store • Sale of an undertaking acquired by a state owned bank - alleged imputability • Complaint – information request XII. Establishment of a state owned Asset Management Company (AMC) • Originally envisaged for takeover of crucial undertakings, later mainly for consultation • Never established, notification withdrawn

  34. Thank you

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